Question 3 (20 Marks) a) The zero-coupon bonds with par value of $1000 have the following term structure Maturity YTM (%) 10% 11% 12% 2 i. What are the implied 1-year forward rates? (5 marks) ii. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will be the pure yield curve next year? (5 marks) iii. What should be the current price of a 2-year maturity bond with a 12% coupon rate paid annually? If you purchased it at that price, what would your total expected rate of return be over the next year? (5 marks) b) A bond with a coupon rate of 7% makes semi-annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on February 15 at 101% of the par value. The par value of the bond is 1000 What is the invoice price of the bond? The coupon period has 182 days